Tito Mboweni. Picture: GCIS
Tito Mboweni. Picture: GCIS

Finance Minister Tito Mboweni could hardly have imagined, when he presented the 2020 budget in February, that he’d have to rip it up and be back four months later to table an emergency adjustment budget amid a pandemic.

The centrepiece of the special budget, due to be tabled on June 24, will be how Mboweni plans to fund the government’s R500bn Covid-19 relief package. Since the R200bn loan guarantee scheme is fiscally neutral, and a further R130bn will be scraped off existing budgets, only R170bn in new money still needs to be found.

But in the context of the huge Covid-19 growth and revenue shock, it is still a vast amount, equal to roughly 3% of GDP.

The Unemployment Insurance Fund and external sources will be tapped, SA plans to borrow $4.2bn from the International Monetary Fund (IMF), $1bn from the New Development Bank and $55m from the World Bank, still leaving markets to pick up a large amount of government bonds.

The tricky bit is that SA must present the IMF with a credible fiscal framework before the funds can be released. According to the lender’s rules, that framework should show that SA has a plan to get debt to stabilise over the longer term.

This should be a cinch for any self-respecting economy, but the shock of the February 2020 budget was that it contained no such plan. It showed SA’s debt ratio arching steeply upward over the next five years — from 60% to 78% of GDP. Even then, this would be achieved only if public sector unions swallowed significant wage restraint, R100bn could be slashed from expenditure, and economic growth revived towards 2% — conditions which have failed to materialise.

Instead, economists expect growth to shrink by at least 7% this year, for the current fiscal deficit to double from the forecasted 6.8% of GDP, and for the debt ratio to hit 80% this fiscal year.

If SA couldn’t budget for debt stabilisation before Covid-19, how on earth will Mboweni do so now? If the political climate wasn’t receptive to the need for austerity in February, it is even less so now, given the gouging SA has taken from the coronavirus. But unless Mboweni can pull a rabbit from his hat on June 24, the country will be short of almost R100bn to plug the revenue gap.

Last week the minister told parliamentarians that SA needed to consider a zero-based approach to budgeting. In other words, instead of increasing existing expenditure by a set percent each year, departments would have to cost each programme from scratch.

While this would be technically onerous, as SA budgets on a three-year rolling basis, it could engender a welcome change in mindset in that all expenditure would need to be constantly justified. We will see tinges of this in the emergency budget, but SA is far from being able to do this across all of government.

In any event, SA’s fiscal challenges are beyond the reach of technical solutions. They are deeply rooted in the ANC’s political choices. This presents Mboweni with a further deficit to overcome on June 24 — a credibility deficit — which won’t easily be done by simply using the term "zero-based budgeting".

In short, SA’s fiscal path will stabilise only if growth takes off, but that will only happen if the government is ready to adopt the kind of reforming zeal which sparks business confidence and investment. Mboweni can talk up SA’s growth potential as much as he likes, and paste a beautifully crafted emergency budget onto SA’s zombie-like economy, but unless the markets (and the IMF) believe it is credible — and it actually delivers growth — it will ultimately be for nought.

So, no pressure then, minister.